'Fiscal Cliff' Bad for Health $$$ Either Way

by David Pittman David Pittman,Washington Correspondent, MedPage Today
November 19, 2012

WASHINGTON -- If the country falls off the dreaded "fiscal cliff" -- a series of mandatory federal spending cuts and tax increases -- at the end of next month, Medicare will see nearly $12 billion in spending cuts and the National Institutes of Health will lose money for about 700 grants. And that's just in one year.

But as dire as that outlook sounds, long-term support of federal health programs could be even worse as lawmakers try to avert the cliff, health policy experts said here last week at a briefing on the topic sponsored by the Alliance for Health Reform.

"Most budget plans on the table take more out of healthcare than what is in the sequester," Bill Hoagland, senior vice president of the Bipartisan Policy Center, said. "The seriousness of finding a balanced approach to dealing with our fiscal outlook will require contributions made out of this sector whether it's from the sequester or not."

The "sequester" refers to the mandatory spending cuts Congress imposed last year under the Budget Control Act. It says Medicare spending would be slashed by 2% and discretionary spending would be cut by $1.2 trillion in across-the-board cuts over a 10-year period. Congress must act to delay those cuts or come up with some alternative plan to raise enough revenue and reduce spending to cover those automatic cuts.

Taken all at once, the looming tax cut expirations and spending cuts would drastically reduce the U.S. economy at a time when the country can't handle it and would ensure another recession, economic analysts predict.

Healthcare plays a key role in the cliff. Aside from the Medicare cuts, the NIH's budget stands to lose $2.5 billion, said Tim Westmoreland, JD, a health law professor at Georgetown University.

The Health Resources and Services Administration stands to lose $600 million in fiscal 2013. The FDA budget would drop by some $350 million. CDC funding would fall $500 million.

Medicaid, veterans health programs, and the Vaccines for Children program are all exempt for automatic spending cuts. Some -- but not all -- community health centers are limited to a 2% cut, like Medicare.

But if Congress is to avert those spending cuts to all federal agencies including the Defense Department, lawmakers must come up with other areas to trim, and experts at the Alliance event pointed to Medicare and the Affordable Care Act (ACA).

Cuts to Medicare in the sequester make up less than 10% of the savings it would provide; roughly $99 billion of the $1.2 trillion.

"It seems hard to believe Medicare, given its size, wouldn't end up contributing more than the $99 billion that's in the CBO baseline under the sequester," Lisa Potetz, healthcare consultant and principal at Health Policy Alternatives, said.

That leaves health professionals to question where savings could come. Leading health professional groups like the American Medical Association and the American Hospital Association -- while quick to urge action on the fiscal cliff -- have been slow to offer alternatives.

Hoagland said some experimental aspects of the ACA, such as accountable care organizations or bundled payments as incentives for well-coordinated care, may become mandatory sooner, rather than an option later.

"I would say something that moves us further away from a fee-for-service to a more competitive, market-based setting is on the table," Hoagland said.

He noted a premium-support system for Medicare isn't likely in the near term, but the fee-for-service model must be changed long term. Others have suggested raising the eligibility age to 67, raising copayments and deductibles, or creating a means test for portions of Medicare.

The ACA's threshold of providing subsidies to buy health insurance could fall from its current limit of those living up to 400% of the federal poverty level, Hoagland said. Lastly, some feel strongly that doctors, hospitals, and other providers should bear some of the blow through payment reductions.

Medicaid plays an odd role in handling the fiscal cliff. It is, on the one hand, an entitlement program up for debate, but also plays a key role in insuring millions of low-income Americans under ongoing health reform efforts.

"I don't think it's ever been in such a conflicted position as it is today between being counted on to be expanded and improved to be a major part of our healthcare reform strategy, and at the same time being talked about as a vehicle for cutting a trillion some dollars out of the program," Diane Rowland, executive vice president of the Kaiser Family Foundation, said.

Hoagland said block grants are off the table in the immediate future, and there's a real hesitancy to move forward at the federal level without knowing what states are doing on expansion and with the program in general.

Accessibility Statement

At MedPage Today, we are committed to ensuring that individuals with disabilities can access all of the content offered by MedPage Today through our website and other properties. If you are having trouble accessing www.medpagetoday.com, MedPageToday's mobile apps, please email legal@ziffdavis.com for assistance. Please put "ADA Inquiry" in the subject line of your email.